MP3 free-for-all

The tiny Napster is shaking the music industry to its foundation.

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Shawn Fanning looks like your typical 19-year-old kid — in a long-sleeved T-shirt and a University of Michigan baseball hat, he’s unassuming and soft-spoken and a bit reluctant to make eye contact with the journalist grilling him across the table. Just last summer he was a college freshman at Northeastern University majoring in computer science, and hanging out on IRC in his free time. Napster was the very first Windows program he ever wrote: He had to buy a book to figure out how to code it.

Today, Fanning is surrounded by the chaos and bustle of his new start-up, also called Napster; he’s dropped out of school to work full time on it and he’s been suddenly enveloped by a seasoned CEO and layers of vice presidents and managers who are scurrying about trying to invent business models and marketing strategies and revenue streams for his barely-in-beta product. Napster the software program — a downloadable application that lets users temporarily turn their computers into servers for the purpose of swapping MP3 files — is growing faster than anyone could have imagined. To add to the excitement, Napster the company is now embroiled in a lawsuit with the notorious Recording Industry Association of America.

Being the founder of the controversial music start-up of the year has to beat freshman English.

Despite its rather humble beginnings as a college freshman’s software project, Napster represents a new paradigm in online music distribution — much like its predecessor MP3.com, which is also embroiled in a lawsuit with the RIAA. Barely six months since conception, the quirky Napster, built by two music-loving teenagers and their energetic CEO, is already causing a ruckus in the online music space. If the company manages to survive both its growing pains and its lawsuit, Napster could well turn the entire music industry on its head.

“Everyone looks at Napster and goes, ‘Holy shit!’” enthuses CEO Eileen Richardson, a vivacious former club diva with burgundy-tinted curls. “The implications of it are tremendous and far-reaching. The recording industry has been a highly controlling industry — it controls distribution, and it even used to control production. They now see a loss of control, they don’t understand the Net or technology, and so when someone is fearful or scared the thing to do is say, ‘We are going to sue you.’”

The Napster world headquarters is scattered about the top two floors of a concrete box of a building in sleepy San Mateo, Calif., 20 minutes south of San Francisco. “Headquarters” is a rather grand term for what is really a handful of tiny offices squeezed between the Palo Alto Coffee Company and a financial advisory firm with a pretentious name and leather decor. Napster, which has grown from two people to nearly 30 in the last few months, is taking over offices as they become open in the building.

The decor is pure start-up chic: Blank whitewall adorned by a few Christmas cards, hand-scrawled notes and a desiccated floral bouquet. There are maps on the wall with little flags pinned to cities across the United States. “What do the flags represent?” I ask Brandon Barber, a senior product manager at Napster. He gazes at the map blankly — it’s probably the first time he’s seen it — and laughs. “They are still here from the last tenants.” The conference room also houses the office microwave; while I’m chatting with Barber, the vice president of finance wanders in and starts eating her Lean Cuisine TV dinner.

Napster has been in these offices for just a few months. Fanning and co-founder Sean Parker, another college student whom he met on IRC, developed the concept of Napster last summer. Then, at the encouragement of Fanning’s uncle John, the two began coaxing money out of their friends and family. They eventually met Richardson, a Boston venture capitalist with 10 years of experience in the tech industry, who, seeing the growth potential of the project, came on as CEO and immediately moved the two students out to San Mateo — on the edge of Silicon Valley, where the big money is. The teenage founders are now buried in mid-level engineering and biz dev positions, while the “adults” Richardson has since hired officially run the show.

The fact that Napster is still in beta hasn’t prevented the product from spreading quickly. “Our real significant metrics aren’t public yet, but I can say that our user base is approaching being the fastest growing community in the history of the Net, including Hotmail,” says Barber. Guesstimates of Napster’s user base range from the thousands to the hundreds of thousands and on up into the millions; a more accurate gauge of the site’s buzz is probably the sheer number of people who are talking about it, and the fact that everyone who uses the program seems to love it.

“I like Napster because I can listen to cool music and get music I couldn’t get through other channels and share it with other people. It’s a fun thing to do,” says Stanford senior David Weekly, a Napster fan who was recently drawn into a mini-controversy when he puzzled out the protocols that make Napster work and published the results online, to the dismay of Napster executives. He uses the service up to 10 hours a week to swap electronica and Mahler songs and staunchly defends the practice: “Sharing music is pretty core to what makes people people — it’s not an evil reflex to want to share music you love.”

As a Napster user, you designate a folder on your hard drive, where you will store the MP3s you’re willing to share with the world. Then, every time you turn on Napster, your computer temporarily becomes a server, allowing other Napster users to download the MP3 files in that folder. The minute you log on, Napster will send a list of the songs in your directory to its central servers; users can then search the master Napster list for individuals who have the song that they want to download. Napster doesn’t store the music on its own servers, but simply matches up the IP addresses of the downloader and downloadee. There are no broken links, server glitches or unrelated results; the database of available songs is astoundingly deep.

“Napster was built on a frustration with unreliable, Web-based search engines like Scour.net and mp3.lycos.com and just the desire to share music,” explains Fanning. “There was no good way to share musical content with people.”

Napster, in contrast, works so well that it’s already clogging the bandwidth of universities, where those first-adopter college kids live. Earlier this month Hofstra University in Hempstead, N.Y., asked its Internet service provider, Applied Theory, to try to limit the amount of Napster traffic going through its pipes. Apparently students were leaving Napster on all night long, downloading hundreds of songs and hogging all the bandwidth. Bob Riley, director of network services at Applied Theory, explains, “Napster isn’t doing anything illegal, or anything that the Net wasn’t designed to do. The problem is that it’s one of those killer apps that people talk about, an invention that consumes resources and is too popular.”

Fanning says that IRC, his old stomping grounds, was the program’s biggest influence (though Napster also bears a striking resemblance to underground shareware programs like Hotline). Staying true to the old IRC adage of share-and-share-alike (as in don’t download something unless you are going to upload something else), Napster’s open structure means that there are no “lurkers.” Finding one Napster user with similar tastes often leads to a treasure trove of new and interesting music you’ll like; everyone who uses Napster, it is predetermined, is willing to share.

Despite the rapidly growing company built around it, Napster still feels much like an underground MP3 community. “Napster feels a little like the first days of MP3, when no one was trying to hide anything but was just saying this is really cool,” explains Weekly. “It’s sort of like those glory days — here’s all the music, we’re not ashamed to share everything.”

Of course, Napster is also rife with piracy. Napster staffers insist that the program was intended to be used by artists and fans. Fanning, a novice musician himself, says he envisioned indie bands making their MP3s available for download without having to go through intermediaries like MP3.com or Emusic. But the reality is that most people are using Napster to swap illegal MP3 files — ripped (copied from CDs into MP3 format) copies of ‘N Sync tracks, the latest Alanis Morissette tune, the new album from Korn. This does not make the RIAA happy, and as a result, the industry trade group is taking Napster, Fanning and his entourage to court.

Napster, of course, downplays the fact that most people use its service to swap illegal MP3s. Richardson focuses on the community and marketing potential for the product. “One opportunity for us is community, adding ICQ [instant messaging] features so that while you are downloading a song you can say to the guy, ‘Gosh, I can’t believe you have this!’ People are so passionate about music, and it’s inherently viral, it’s a natural fit for this community stuff,” she explains. “But also, since we know you as a user and can see what you are downloading, we can feed up to you, through collaborative filtering, a band you’ve never heard of that you have a 99 percent chance of loving.” Record companies could use this to promote new bands, she says.

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The recording industry isn’t buying this. In December, not long after the beta release of the product, the RIAA filed suit alleging that Napster is operating as a haven for music piracy on the Internet. The RIAA was unwilling to comment for this story, but infuriated press releases and statements from the group’s officers claim that Napster is promoting copyright infringement: “Napster is similar to a giant online pirate bazaar: Users log onto Napster servers and make their previously personal MP3 collections available for download by other Napster users who are logged on at the same time. Napster provides its users with all the facilities and means to engage in massive copyright infringement.”

Napster’s response is that the onus for honesty is on the users, not the network. According to Richardson, Napster is like an ISP, protected under the Digital Millennium Copyright Act: It isn’t the company’s fault that people use its service to exchange illegal files, just as it wouldn’t be AOL’s legal responsibility if terrorists used one of its private chat rooms to plan a bombing. And it’s true that if Napster’s users were innocently exchanging MP3 recordings of their own invention, the RIAA would probably pay no mind to Napster whatsoever. However, those college students would rather swap chart-toppers — and it’s easier for the RIAA to go after the network than tracking down the hundreds of thousands of individuals who are exchanging a pirated song here and there. Although they’re doing that too.

According to Robin Gross, a staff attorney for the Electronic Frontier Foundation, Napster may find a precedent in the Betamax decision — a 1984 case in which the motion picture industry attempted to sue Sony, the makers of the first VCR, for enabling copyright infringement. The Supreme Court decided that technology can’t be outlawed merely because some of its uses are for unlawful purposes. Adds Gross, “There are substantial non-infringing uses for this [Napster] technology — this is a technology that allows people to share public domain works with each other, or there might be copyright holders who don’t mind sharing their works.”

Being in the RIAA’s bad graces puts Napster in good company: An RIAA lawsuit has become almost a coming-of-age ritual for online music companies attempting some new form of digital music distribution. The RIAA has in the past sued up-and-coming companies like Diamond Multimedia, which built the first commercial portable MP3 player; it also sent threatening letters to MP3 search engines like Mp3.lycos.com. In all cases, the RIAA has had to settle.

In late January the RIAA filed a fresh lawsuit, against MP3.com for its new My.MP3.com service.

My.Mp3.com launched in a beta version just a few weeks ago, as an extension to MP3.com’s digital music download service. Featuring a nifty little software application called Beam-It, My.MP3.com lets you access CDs you already own as digital files online. (You put your CD in your computer’s CD-ROM drive and the Beam-It software recognizes that you own the CD and transfers its own corresponding MP3 files into your online account for your use. Your actual CD acts sort of like a license.) The idea is that My.MP3.com will become your music locker — a central location to keep all those memory-hogging MP3s, so that you can access them from any computer in the world.

The RIAA’s lawsuit here hinges around the invisible machinations behind Beam-It: Whenever you “beam” a CD into your account, someone at MP3.com is actually running out and buying that CD and ripping it for you. MP3.com has amassed and ripped a collection of 45,000 CDs to have at the ready.

The problem, says the RIAA, is that MP3.com has no license to that music, and no right to build that database. As RIAA president Hillary Rosen put it in an open letter to Robertson, “It is not legal to compile a vast database of our member’s sound recordings with no permission and no license. And whatever the individual’s right to use their own music, you cannot exploit that for your company’s commercial gain.”

Michael Robertson, in response, says that the new music distribution system is perfectly legal: No one is getting access to those digital music files unless they have already paid for the CD. He has also, as is typical with Robertson, twisted the lawsuit into a grass-roots fight — it’s not one company vs. the RIAA, it’s you and your right to listen to your music wherever you want to vs. the Big Bad Record Industry.

“We think it’s a clear issue of consumers’ rights here,” Robertson explains excitedly. “You don’t have to pay more royalties to listen to a CD in your living room; why should you pay more royalties to listen to your CD in your living room on your computer?”

And, to an extent, he is right. If I own a CD that I already shelled out $16 for at my local Virgin Megastore, why shouldn’t I be able to instantly store that CD online? MP3.com is merely turning that process — of ripping a CD into individual MP3 files and then uploading those files into an online account — from an hour-long process into a two-minute process. The end result is the same.

The RIAA, again, is not buying this argument — or, perhaps it’s looking for a way to wrest control away from these upstart companies that threaten to change the way music is exchanged. “This is a new architecture that the record industry doesn’t control; and any business model or delivery model that they don’t control is a threat to their business,” explains Gross of the EFF. “If you can use copyright law as a reason to squash your competition, then why not?”

Although the Napster and MP3.com cases are built around different legal questions, the lawsuits are rooted in the same record industry insecurities. Both lawsuits, when it comes down to it, are arguments about distribution — My.Mp3.com and Napster both enable unique new ways to exchange and build libraries of digital files; they are means of distribution that didn’t originate in the record industry. Both companies are rooted in grass-roots ideologies that want to give control to consumers, not the record companies.

“It’s about power,” Robertson says, drawing parallels between his company, valued at well over $1 billion, and little Napster, which is looking to follow in MP3.com’s footsteps. “It’s about who’s going to have control. Distribution is one part of it, but there’s a macro issue — who’s going to interface with the consumers and deliver the goods to them?”

“People are naturally passionate about music, naturally want to share it; artists naturally want to create and share their music and find their fans: That’s what music is all about,” enthuses Napster’s CEO, Richardson. “Now we have the Internet — why can’t we do some of that there? But everyone in the music industry is coming in and saying, ‘No, these are the rules, and I own the music.’ They’re just pretending to be about copyright,” she says.

Richardson is confident that Napster will win its lawsuit; the case will probably be drawn out for much of this year. But even if Napster does win, the company will have to adapt and change. Unless Napster wants to remain a recording industry pariah, it will have to find a way to ease the record labels’ fear that kids will stop buying CDs because they can get the same music free as MP3s on Napster.

Richardson is fully aware of this. “Our vision is that we are a marketing mechanism, a way for people to learn about music that they otherwise wouldn’t be able to,” says Richardson. “We have a long way to go until we figure out the answer to that question [of security]: Whether it’s watermarking music, or just being able to hear part of a song, or whether the labels will finally say, ‘OK, this is just marketing,’ and understand that their market is going to grow $40 billion to $100 billion. We don’t have the answers; we’re just trying to stay in business.”

There is a chance the RIAA will win its suit, of course. But even if Napster is shut down by the RIAA before it even has a proper launch, the concept isn’t going to disappear. Kids like Fanning, who are more concerned about building cool music communities than corporate battles, aren’t going to let this idea die. As Robertson puts it, “This is all inevitable — it’s universal around Net people that this technology is unstoppable. Even if you were to win against Napster or Mp3.com, the future is still coming and changing.”

The real question is whether the record industry will itself try to adapt — and, instead of trying to derail the train, will jump on and take a ride.